Amazon’s Three-Pronged Perfect Storm for Brands

By Buy Box Experts on January 5, 2019

Today, brands must have an Amazon strategy that is more agile than ever before. Why? Because of three challenges they face that represent a potent combination. Amazon’s private labels make them a potential direct competitor to brands. Meanwhile, brands’ search advantage threatens to be usurped by Alexa, Amazon’ futuristic voice service. And unauthorized third-party sellers continue to present challenges to a brand’s equity and revenue.

Individually, these challenges can prove large and expensive for brands—but together, they can be seen as a perfect storm that could greatly hamper a brand’s finances and future on the platform.

Challenge #1: Amazon’s Private Labels

recent report suggests Amazon “doesn’t have private labels cracked,” as most of its private-label conversions depend on one-click purchases of products in its AmazonBasics line. When AmazonBasics products are left out of the equation, Amazon only has 7% of the market share of conversions. Does this suggest Amazon hasn’t yet mastered private label products?

Perhaps—but brands still have reason to be concerned.

First, Amazon has created roughly 100 different private labels in a very short time across a range of categories. And the company seems to be banking on consumers’ fickleness when it comes to brand loyalty to drive growth in private label sales, with some success. After effectively luring customers away from battery brands Duracell and Energizer and over to its AmazonBasics line a few years ago, Amazon has its private-label sights set higher. It appears to be testing the price elasticity of popular products from brands mainly in the apparel and CPG spaces (such as P&G and Unilever), in the hope of stealing market share from these established brands.

Amazon is also trying to win customers for its private label offerings by testing customer brand affinity based on lower pricing for goods that qualify for Prime and speedy delivery. Amazon’s Prime customers are some of the most attractive targets for brands, as they spend more each year on the site than do non-Prime customers. Amazon is also working with select partners to create exclusive products that are only available to Prime customers.

Challenge #2: Alexa

According to a 2017 study by Linc Global and Rakuten, owners of Amazon Echo devices, which are powered by Amazon’s Alexa voice-based search technology, increased their purchases of consumer products by 13.5% in the third quarter of 2017, on the heels of a 7.5% jump in the previous quarter. Alexa would appear to represent a golden opportunity for brands—but the downsides are significant.

Alexa enables Amazon to gather crucial data about consumer buying habits and preferences while wrestling even more control from the hands of brands and competitors. Customers love the frictionless purchase process Alexa provides, but brands must be cautious, as the opacity of Alexa-based transactions provides Amazon with a powerful way to control which brands’ products are ordered via voice.

With voice search, the risk of not being in the first search position can be dire—much more so than with traditional browser- or app-based search—since Alexa typically only offers up to two brand options when a consumer initiates a voice search. The challenge for brands is clear: optimize their product pages as best they can to garner a top search slot, or risk being passed over by Alexa customers.

Challenge #3: Third-Party Sellers

The prevalence of third-party sellers on the Amazon marketplace means brands need to adopt the mindset that customers will be able to find their products on Amazon even if the brand does not have an Amazon strategy. If you sell products online or offline, chances are good those products will eventually make their way to Amazon. Even if a brand has no resellers authorized to sell its products on Amazon, the open marketplace attracts a large number of unauthorized sellers that can potentially wreak havoc on a brand’s hard-fought equity.

As a result, brands will have to institute a system of channel governance based around trademarks that protect the brand’s intellectual property and that can be used to enforce the removal of unauthorized sellers. Brands can also conduct test purchases and then report unauthorized sellers to Amazon’s Seller Performance team.

What should brands do to face this perfect storm?

A three-pronged approach is needed:

  1. Invest in channel governance efforts, including developing online reseller policies and ensuring ongoing enforcement of trademarks. Prior to selling on Amazon, brands must ensure that they have the requisite patents and trademarks in the regions in which they want to sell their products. They must also actively identify and pursue unauthorized sellers and enlist the support of Amazon’s Seller Performance team to remove these sellers from the platform.
  2. Develop high-quality listing content. By providing an optimized catalog, brands ensure that consistent and proper branding is seen on Amazon. Investing in high-quality listing content also helps optimize organic SEO, leading to better organic search results for the brands’ products, crucial in obtaining high placement in Alexa searches.
  3. Advertise on Amazon to increase visibility and improve conversion rates, which will also help organic search results. And if listings are optimized and good channel governance is in place, then the benefits of advertising to the brand will be multiplied.

Brands need to understand that Amazon’s private labels are not going away, that Alexa is likely to have an increasingly larger influence on Amazon’s business and how customers interact with Amazon’s services, and that third-party sellers will continue to be a mainstay on the platform. These three elements could become a massive collective hurdle for brands that aren’t prepared—or an asset for those that think long-term and proactively about their Amazon strategy.

Buy Box Experts
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